Note 1 Organization
SPDR S&P 500® ETF Trust (the Trust) is a unit investment trust created under the laws of the State of New York and registered under the Investment Company Act of
1940, as amended. The Trust is an Exchange-Traded Fund, the units of which are listed on and traded on the New York Stock Exchange under the symbol SPY, and operates under an exemptive order granted by the U.S. Securities and
Exchange Commission (the SEC). The Trust was created to provide investors with the opportunity to purchase a security representing a proportionate undivided interest in a portfolio of securities consisting of substantially all of the
component common stocks, in substantially the same weighting, which comprise the Standard & Poors
500® Index (the S&P 500® Index). Each unit of fractional undivided interest in the Trust is referred to as a Unit. The Trust commenced operations on January 22, 1993
upon the initial issuance of 150,000 Units (equivalent to three Creation Units see Note 4) in exchange for a portfolio of securities assembled to reflect the intended portfolio composition of the Trust.
Effective June 16, 2017, State Street Bank and Trust Company (SSBT) resigned as trustee of the Trust. PDR Services, LLC, as sponsor of
the Trust (the Sponsor), appointed State Street Global Advisors Trust Company, a wholly-owned subsidiary of SSBT, as trustee of the Trust (the Trustee).
The services received, and the trustee fees paid, by the Trust have not changed as a result of the change in the identity of the Trustee. SSBT continues to maintain the Trusts accounting records,
act as custodian and transfer agent to the Trust, and provide administrative services, including the filing of certain regulatory reports.
Under the Amended and Restated Standard Terms and Conditions of the Trust, as amended (the Trust Agreement), the Sponsor and the Trustee are
indemnified against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust enters into contracts that contain general indemnification clauses. The Trusts
maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. However, based on experience, the Trustee expects the risk of material loss to be remote.
The Sponsor is an indirect, wholly-owned subsidiary of Intercontinental Exchange, Inc. (ICE). ICE is a publicly-traded entity,
trading on the New York Stock Exchange under the symbol ICE.
Note 2 Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Trustee in the preparation of the Trusts financial
statements:
The preparation of financial statements in accordance with U.S. generally accepted accounting principles (U.S. GAAP)
requires the Trustee to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The Trust is an investment company under U.S. GAAP and follows the
accounting and reporting guidance applicable to investment companies.
Security Valuation
The Trusts investments are valued at fair value each day that the New York Stock Exchange (NYSE) is open and, for financial reporting
purposes, as of the report date should the reporting period end on a day that the NYSE is not open. Fair value is generally defined as the price a fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between
market participants at the measurement date. By its nature, a fair value price is a good faith estimate of the valuation in a current sale and may not reflect an actual market price. The
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SPDR S&P 500®
ETF Trust
Notes to Financial Statements (continued)
March 31, 2020 (Unaudited)
Note 2 Summary of Significant Accounting Policies (continued)
investments of the Trust are valued pursuant to the policy and procedures developed by the Oversight Committee of the Trustee (the Committee). The Committee provides oversight of the
valuation of investments for the Trust.
Valuation techniques used to value the Trusts equity investments are as follows:
Equity investments (including preferred stocks) traded on a recognized securities exchange for which market quotations are readily available are valued at
the last sale price or official closing price, as applicable, on the primary market or exchange on which they trade. Equity investments traded on a recognized exchange for which there were no sales on that day are valued at the last published sale
price or at fair value.
In the event that prices or quotations are not readily available or that the application of these valuation methods
results in a price for an investment that is deemed to be not representative of the fair value of such investment, fair value will be determined in good faith by the Committee, in accordance with the valuation policy and procedures approved by the
Trustee.
Fair value pricing could result in a difference between the prices used to calculate the Trusts net asset
value (NAV) and the prices used by the Trusts underlying index, S&P 500® Index, which in
turn could result in a difference between the Trusts performance and the performance of the S&P 500®
Index.
The Trustee values the Trusts assets and liabilities at fair value using a hierarchy that prioritizes the inputs to valuation
techniques, giving the highest priority to readily available unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements) when market
prices are not readily available or reliable. The categorization of a value determined for an investment within the hierarchy is based upon the pricing transparency of the investment and is not necessarily an indication of the risk associated with
the investment.
The three levels of the fair value hierarchy are as follows:
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Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities;
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Level 2 Inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities either directly or
indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not considered to be active, inputs other than quoted prices that are
observable for the asset or liability (such as exchange rates, financing terms, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs; and
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Level 3 Unobservable inputs for the asset or liability, including the Committees assumptions used in determining the fair value of
investments.
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Investment Transactions and Income Recognition
Investment transactions are accounted for on the trade date for financial reporting purposes. Dividend income and capital gain distributions, if any, are recognized on the
ex-dividend date, or when the information becomes available, net of any foreign taxes withheld at source, if any. Non-cash dividends received in the form of stock, if
any, are recorded as dividend income at fair value. Distributions received by the Trust may include a return of capital that is estimated by the Trustee. Such amounts are recorded as a reduction of the cost of investments or
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SPDR S&P 500®
ETF Trust
Notes to Financial Statements (continued)
March 31, 2020 (Unaudited)
Note 2 Summary of Significant Accounting Policies (continued)
reclassified to capital gains. The Trust invests in real estate investment trusts (REITs). REITs determine the characterization of their income annually and may characterize a portion
of their distributions as a return of capital or capital gain. The Trustees policy is to record all REIT distributions as dividend income initially and re-designate a portion to return of capital or
capital gain distributions at year end based on information provided by the REIT and/or Trustees estimates of such re-designations for which actual information has not yet been reported. Realized gains
and losses from the sale or disposition of investments are determined using the identified cost method.
Distributions
The Trust declares and distributes dividends from net investment income, if any, to its holders of Units (Unitholders) quarterly. Capital gain
distributions, if any, are generally declared and paid annually. Additional distributions may be paid by the Trust to avoid imposition of federal income and excise tax on any remaining undistributed net investment income and capital gains. The
amount and character of income and gains to be distributed are determined in accordance with federal tax regulations which may differ from net investment income and realized gains recognized for U.S. GAAP purposes.
Equalization
The Trustee follows the
accounting practice known as Equalization by which a portion of the proceeds from sales and costs of reacquiring the Trusts Units, equivalent on a per Unit basis to the amount of distributable net investment income on the date of
the transaction, is credited or charged to undistributed net investment income. As a result, undistributed net investment income per Unit is unaffected by sales or reacquisitions of the Trusts Units. Amounts related to Equalization can be
found on the Statements of Changes in Net Assets.
Federal Income Taxes
For U.S. federal income tax purposes, the Trust has qualified as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (a RIC), and
intends to continue to qualify as a RIC. As a RIC, the Trust will generally not be subject to U.S. federal income tax for any taxable year on income, including net capital gains, that it distributes to its Unitholders, provided that it distributes
on a timely basis at least 90% of its investment company taxable income determined prior to the deduction for dividends paid by the Trust (generally, its taxable income other than net capital gain) for such taxable year. In addition,
provided that the Trust distributes substantially all of its ordinary income and capital gains during each calendar year, the Trust will not be subject to U.S. federal excise tax. Income and capital gain distributions are determined in accordance
with U.S. federal income tax principles, which may differ from U.S. GAAP.
U.S. GAAP requires the evaluation of tax positions taken in the
course of preparing the Trusts tax returns to determine whether the tax positions are more likely than not to be sustained by the applicable tax authority. For U.S. GAAP purposes, the Trust recognizes the tax benefits of uncertain tax
positions only when the position is more likely than not to be sustained, assuming examination by tax authorities.
The Trustee has reviewed
the Trusts tax positions for the open tax years as of September 30, 2019 and has determined that no provision for income tax is required in the Trusts financial statements. Generally, the Trusts tax returns for the prior three
fiscal years remain subject to examinations by the Trusts major tax jurisdictions,
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SPDR S&P 500®
ETF Trust
Notes to Financial Statements (continued)
March 31, 2020 (Unaudited)
Note 2 Summary of Significant Accounting Policies (continued)
which include the United States of America, the Commonwealth of Massachusetts and the State of New York. The Trustee has the Trust recognize interest and penalties, if any, related to tax
liabilities as income tax expense in the Statements of Operations. There were no such expenses for the year ended September 30, 2019.
No
income tax returns are currently under examination. The Trustee has analyzed the relevant tax laws and regulations and their application to the Trusts facts and circumstances and does not believe there are any uncertain tax positions that
require recognition of any tax liabilities. Any potential tax liability is also subject to ongoing interpretation of laws by taxing authorities. The tax treatment of the Trusts investments may change over time based on factors including, but
not limited to, new tax laws, regulations and interpretations thereof.
During the six months ended March 31, 2020, the Trustee
reclassified $15,162,843,673 of non-taxable security gains realized from the in-kind redemption of Creation Units (Note 4) as an increase to paid in capital in the
Statement of Assets and Liabilities.
At March 31, 2020, gross unrealized appreciation and gross unrealized depreciation of investments
based on cost for federal income tax purposes were as follows:
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Tax Cost
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Gross
Unrealized
Appreciation
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Gross
Unrealized
Depreciation
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Net
Unrealized
Appreciation
(Depreciation)
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SPDR S&P 500® ETF Trust
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$
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294,836,328,800
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$
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5,152,552,679
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$
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64,732,681,170
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$
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(59,580,128,491
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)
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Note 3 Transactions with Affiliates of the Trustee and Sponsor
SSBT maintains the Trusts accounting records, acts as custodian and transfer agent to the Trust, and provides administrative
services, including the filing of certain regulatory reports. The Trustee pays SSBT for such services. The Trustee is responsible for determining the composition of the portfolio of securities which must be delivered and/or received in exchange for
the issuance and/or redemption of Creation Units of the Trust, and for adjusting the composition of the Trusts portfolio from time to time to conform to changes in the composition and/or weighting structure of the S&P 500® Index . For these services, the Trustee received a fee at the following annual rates for the six months ended
March 31, 2020:
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Net asset value of the Trust
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Fee as a percentage of net asset value of the Trust
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$0 $499,999,999
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0.10% per annum plus or minus the Adjustment Amount
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$500,000,000 $2,499,999,999
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0.08% per annum plus or minus the Adjustment Amount
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$2,500,000,000 and above
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0.06% per annum plus or minus the Adjustment Amount
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The adjustment amount (the Adjustment Amount) is the sum of (a) the excess or deficiency of transaction
fees received by the Trustee, less the expenses incurred in processing orders for the creation and redemption of Units and (b) the amounts earned by the Trustee with respect to the cash held by the Trustee for the benefit of the Trust. During
the six months ended March 31, 2020, the Adjustment Amount reduced the Trustees fee by $9,562,023. The Adjustment Amount included an excess of net transaction fees from processing orders of $2,190,066 and a Trustee earnings credit of
$7,371,957.
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SPDR S&P 500®
ETF Trust
Notes to Financial Statements (continued)
March 31, 2020 (Unaudited)
Note 3 Transactions with Affiliates of the Trustee and Sponsor (continued)
The Trustee has voluntarily agreed to waive a portion of its fee, as needed, for one year until
February 1, 2021, so that the total operating expenses would not exceed 0.0945% per annum of the daily NAV of the Trust. The total amount of such waivers by the Trustee for the year ended September 30, 2017 is identified in the Statements
of Operations. No amounts were waived for the six months ended March 31, 2020 and the years ended September 30, 2019 and September 30, 2018. The Trustee has not entered into an agreement with the Trust to recapture waived fees in
subsequent periods, and the Trustee may discontinue the voluntary waiver.
In accordance with the Trust Agreement and under the terms of an
exemptive order issued by the SEC, dated December 30, 1997, the Sponsor is reimbursed by the Trust for certain expenses up to a maximum of 0.20% of the Trusts NAV on an annualized basis. The expenses reimbursed to the Sponsor for the six
months ended March 31, 2020, and the years ended September 30, 2019, 2018 and 2017, did not exceed 0.20% per annum. The licensing and marketing fee disclosed below are subject to both the reimbursement from the Trust to the Sponsor and
expense limitation of 0.20% of the Trusts NAV. The Trust reimbursed the Sponsor for $145,931 of legal fees, which are included in Legal and audit fees on the Statements of Operations.
S&P Dow Jones Indices LLC (S&P), per a license from Standard & Poors Financial Services LLC, and
State Street Global Advisors Funds Distributors, LLC (SSGA FD or the Marketing Agent) have entered into a license agreement (the License Agreement). The License Agreement grants SSGA FD, an affiliate of the
Trustee, a license to use the S&P 500® Index and to use certain trade names and trademarks of S&P in
connection with the Trust. The S&P 500® Index also serves as the basis for determining the composition of
the Trusts portfolio. The Trustee (on behalf of the Trust), the Sponsor and NYSE Arca, Inc. (NYSE Arca) have each received a sublicense from SSGA FD for the use of the S&P 500® Index and certain trade names and trademarks in connection with their rights and duties with respect to the Trust. The License Agreement may be amended without the
consent of any of the owners of beneficial interests of Units. Currently, the License Agreement is scheduled to terminate on November 29, 2031, but its term may be extended without the consent of any of the owners of beneficial interests of
Units. Pursuant to such arrangements and in accordance with the Trust Agreement, the Trust reimburses the Sponsor for payment of fees under the License Agreement to S&P equal to 0.03% of the daily size of the Trust (based on Unit closing price
and outstanding Units) plus an annual license fee of $600,000.
The Sponsor has entered into an agreement with the Marketing Agent pursuant to
which the Marketing Agent has agreed to market and promote the Trust. The Marketing Agent is reimbursed by the Sponsor for the expenses it incurs for providing such services out of amounts that the Trust reimburses the Sponsor. Expenses incurred by
the Marketing Agent include, but are not limited to: printing and distribution of marketing materials describing the Trust, associated legal, consulting, advertising and marketing costs and other out-of-pocket expenses.
ALPS Distributors, Inc. (the Distributor) serves as the
distributor of the Units. The Sponsor pays the Distributor for its services a flat annual fee of $25,000, and the Trust does not reimburse the Sponsor for this fee.
Investments in Affiliates of the Trustee and the Sponsor
The Trust
has invested in companies that are considered affiliates of the Trustee (State Street Corp.) and the Sponsor (ICE). Such investments were made according to the representative portion of the S&P
500® Index. The market values of these investments at March 31, 2020 are listed in the Schedule of
Investments.
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SPDR S&P 500®
ETF Trust
Notes to Financial Statements (continued)
March 31, 2020 (Unaudited)
Note 3 Transactions with Affiliates of the Trustee and Sponsor (continued)
On March 20, 2017, the Trust received a non-recurring
litigation payment of $661,715 from State Street Corp., an affiliate of the Trustee, which is recorded as a realized gain in the 2017 Statements of Operations.
Note 4 Unitholder Transactions
Units are issued and redeemed
by the Trust only in Creation Unit size aggregations of 50,000 Units. Such transactions are only permitted on an in-kind basis, with a separate cash payment that is equivalent to the undistributed net
investment income per Unit (income equalization) and a balancing cash component to equate the transaction to the NAV per Unit of the Trust on the transaction date. There is a transaction fee payable to the Trustee in connection with each creation
and redemption of Creation Units made through the clearing process (the Transaction Fee). The Transaction Fee is non-refundable, regardless of the NAV of the Trust. The Transaction Fee is the
lesser of $3,000 or 0.10% (10 basis points) of the value of one Creation Unit at the time of creation per participating party per day, regardless of the number of Creation Units created or redeemed on such day. The Transaction Fee is currently
$3,000. For creations and redemptions outside the clearing process, including orders from a participating party restricted from engaging in transactions in one or more of the common stocks that are included in the S&P 500® Index, an additional amount not to exceed three (3) times the Transaction Fee applicable for one Creation Unit
is charged per Creation Unit per day.
Note 5 Investment Transactions
For the six months ended March 31, 2020, the Trust had in-kind contributions, in-kind redemptions, purchases and sales
of investment securities of $111,544,926,681, $116,382,899,677, $2,577,164,747, and $2,150,754,174, respectively. Net realized gain (loss) on investment transactions in the Statements of Operations includes net gains resulting from in-kind transactions of $15,162,843,673.
Note 6 Equity Investing and Market Risk
An investment in the Trust involves risks similar to those of investing in any fund of equity securities, such as market fluctuations caused by such
factors as economic and political developments, changes in interest rates, perceived trends in securities prices, war, acts of terrorism, the spread of infectious disease or other public health issues. Local, regional or global events such as war,
acts of terrorism, the spread of infectious disease or other public health issues, recessions, or other events could have a significant impact on the Trust and its investments and could result in increased premiums or discounts to the Trusts
net asset value.
An investment in the Trust is subject to the risks of any investment in a broadly based portfolio of
equity securities, including the risk that the general level of stock prices may decline, thereby adversely affecting the value of such investment. The value of common stocks actually held by the Trust and that make up the Trusts portfolio
(the Portfolio Securities) may fluctuate in accordance with changes in the financial condition of the issuers of Portfolio Securities, the value of equity securities generally and other factors. The identity and weighting of common
stocks that are included in the S&P 500® Index and the Portfolio Securities change from time to time.
The financial condition of issuers of Portfolio Securities may become impaired or the general condition of the stock
market may deteriorate, either of which may cause a decrease in the value of the Trusts portfolio and thus in the value of Units. Since the Trust is not actively managed, the adverse financial condition of an issuer will not result in its
elimination from the Trusts portfolio unless such issuer is removed from the S&P 500® Index. Equity
securities are susceptible to general stock market fluctuations and to volatile increases and decreases in value as
18
SPDR S&P 500®
ETF Trust
Notes to Financial Statements (continued)
March 31, 2020 (Unaudited)
Note 6 Equity Investing and Market Risk (continued)
market confidence in and perceptions of their issuers change. These investor perceptions are based on
various and unpredictable factors, including expectations regarding government, economic, monetary and fiscal policies, inflation and interest rates, economic expansion or contraction, and global or regional political, economic and banking crises,
as well as war, acts of terrorism and the spread of infectious disease or other public health issues.
An outbreak of infectious respiratory
illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and was declared a pandemic by the World Health Organization in March 2020. This coronavirus has resulted in
travel restrictions, restrictions on gatherings of people (including closings of, or limitations on, dining and entertainment establishments, as well as schools and universities), closed businesses (or businesses that are restricted in their
operations), closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions, and lower
consumer demand, as well as general concern and uncertainty. The impact of COVID-19, and other infectious disease outbreaks that may arise in the future, could adversely affect the economies of many nations or
the entire global economy, individual issuers and capital markets in ways that cannot be foreseen. Public health crises caused by the COVID-19 outbreak may exacerbate other
pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak cannot be determined with certainty. The risk
of further spreading of COVID-19 has led to significant uncertainty and volatility in the financial markets and disruption to the global economy, the consequences of which are currently unpredictable. Certain
of the Trusts investments are likely to have exposure to businesses that, as a result of COVID-19, experience a slowdown or temporary suspension in business activities. These factors, as well as any
restrictive measures instituted in order to prevent or control a pandemic or other public health crisis, such as the one posed by COVID-19, could have a material and adverse effect on the Trusts
investments.
Note 7 Recent Accounting Pronouncements
In August 2018, the SEC released its Final Rule on Disclosure Update and Simplification (the Final Rule) which is intended to simplify an issuers disclosure compliance efforts by
removing redundant or outdated disclosure requirements without significantly altering the mix of information provided to investors. The Trust adopted the Final Rule in 2018 with the most notable impacts being that the Trust is no longer required to
present components of distributable earnings on the Statement of Assets and Liabilities or the sources of distributions to Unitholders and the amount of undistributed net investment income on the Statements of Changes in Net Assets.
Note 8 Subsequent Events
The
Trustee has evaluated the impact of all subsequent events on the Trust through the date on which the financial statements were issued and has determined that there were no subsequent events requiring adjustment or disclosure in the financial
statements.
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SPDR S&P 500®
ETF Trust
Other Information
March 31, 2020 (Unaudited)
Comparison of Total Returns Based on NAV and Bid/Ask Price(1)
The table below is provided to compare the Trusts total pre-tax return at NAV with the total pre-tax returns based on bid/ask price and the performance of the S&P 500® Index. Past performance is not necessarily an indication of how the Trust will perform in the future. The return
based on NAV shown in the table below reflects the impact of a fee waiver and, without this waiver, returns would have been lower.